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Do Managerial Objectives Drive Bad Acquisitions?

Authors

  • RANDALL MORCK,

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    • University of Alberta, University of Chicago, and University of Chicago, respectively. We are indebted for comments to Steve Kaplan, Wayne Marr, Wayne Mikkelson, Sam Peltzman, Rene Stulz and an anonymous referee and for financial support to the Russell Sage Foundation, the Center for the Study of the Economy and the State, the National Center for Management Research and Development, the William S. Fishman and the Dimensional Fund Advisers Faculty Research Funds at the Graduate School of Business, University of Chicago.

  • ANDREI SHLEIFER,

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    • University of Alberta, University of Chicago, and University of Chicago, respectively. We are indebted for comments to Steve Kaplan, Wayne Marr, Wayne Mikkelson, Sam Peltzman, Rene Stulz and an anonymous referee and for financial support to the Russell Sage Foundation, the Center for the Study of the Economy and the State, the National Center for Management Research and Development, the William S. Fishman and the Dimensional Fund Advisers Faculty Research Funds at the Graduate School of Business, University of Chicago.

  • ROBERT W. VISHNY

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    • University of Alberta, University of Chicago, and University of Chicago, respectively. We are indebted for comments to Steve Kaplan, Wayne Marr, Wayne Mikkelson, Sam Peltzman, Rene Stulz and an anonymous referee and for financial support to the Russell Sage Foundation, the Center for the Study of the Economy and the State, the National Center for Management Research and Development, the William S. Fishman and the Dimensional Fund Advisers Faculty Research Funds at the Graduate School of Business, University of Chicago.


ABSTRACT

In a sample of 326 US acquisitions between 1975 and 1987, three types of acquisitions have systematically lower and predominantly negative announcement period returns to bidding firms. The returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target, and when its managers performed poorly before the acquisition. These results suggest that managerial objectives may drive acquisitions that reduce bidding firms' values.

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